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Better-than-expected results were primarily driven by a surge in non-interest income, partially offset by declining net interest income and higher operating expenses. Growth in loans and deposits, strong capital position and enhanced credit quality were the tailwinds for the quarter.

BB&T’s net income available to common shareholders came in at $547 million, up 7.3% from $510 million in the prior year.

Performance in Detail

Total revenue came in at $2.50 billion, up 1.3% year over year. This was ahead of the Zacks Consensus Estimate of $2.46 billion.

Tax-equivalent net interest income waned 3.2% year over year to $1.45 billion. The decrease was due to a fall in interest income, partially offset by lower funding costs.

Non-interest income surged 8.3% year over year to $1.05 billion. The rise was mainly attributable to increase in net securities gains as well as insurance income and other income, partially offset by lower mortgage banking income.

Non-interest expense rose 4.9% year over year to $1.50 billion. The rise was mainly due to an increase in personnel expenses, merger and restructuring costs, and other expenses, partly offset by a fall in foreclosed property expenses.

BB&T’s efficiency ratio in the reported quarter was 57.6%, up from 53.9% in the prior-year quarter. The increase indicates deterioration in profitability.

Average deposits increased 3.7% year over year to $130.0 billion. Similarly, average loans held for investment were $114.27 billion, up 4.6% year over year.

Credit Quality

BB&T’s credit quality continued to improve. As of Jun 30, 2013, total non-performing assets (NPAs) declined 9.7% sequentially and 32.7% year over year to $1.28 billion, due to decreases in non-performing loans and leases. As a percentage of total assets, NPAs came in at 0.71%, down 9 bps sequentially and 38 bps year over year.

Similarly, excluding covered loans, net charge-offs were 0.75% of average loans and leases, down 23 bps from the prior quarter and 47 bps from the year-ago quarter. Further, the allowance for loan and lease losses was 1.57% of total loans and leases held for investment, down from 1.65% as of Mar 31, 2013, and 1.86% as of Jun 30, 2012. The decrease was primarily driven by improvement in the overall loan portfolio.

Moreover, provision for credit losses excluding covered loans was $179 million, down 27.5% from $247 million in the prior-year quarter.

Profitability and Capital Ratios

Profitability metrics improved in second-quarter 2013. As of Jun 30, 2013, return on average assets was 1.27%, compared with 1.22% at the end of prior quarter. Moreover, return on average common equity improved to 11.39% from 11.21% as of Jun 30, 2012.

In the reported quarter, BB&T's capital ratios were strong. As of Jun 30, 2013, Tier 1 risk-based capital ratio and tangible common equity ratio were 11.3% and 7.3% respectively, compared with 10.7% and 6.9%, as of Jun 30, 2012.

BB&T's common equity Tier 1 ratio, under the currently proposed Basel III capital standards, was 9.0% as of Jun 30, 2013 based on the Federal Reserve's new comprehensive capital framework for the banking organizations in the U.S.

Performances of Other Major Regional Banks

Bank of America Corporation (BAC - Analyst Report) beat the Zacks Consensus Estimate. Results were aided by a reduction in non-interest expenses and a slowdown in the provision for credit losses. Though the top line showed year-over-year growth, it was not a major contributing factor this quarter. The improvement was partially offset by the absence of year-ago gains related to liability management action and lower mortgage banking income.

Comerica Incorporated’s (CMA - Analyst Report) earnings beat the Zacks Consensus Estimate. Results reflect increased non-interest income and reduced expenses. Further, growth in average loans, deposits and improved credit metrics were the positives. However, a marginal decline in net interest income was the headwind.

However, Northern Trust Corporation (NTRS - Analyst Report) missed the Zacks Consensus Estimate. Top-line growth and better capital position were more than offset by a rise in operating expenses. Moreover, deteriorating credit quality was the headwind.

Our Viewpoint

BB&T continues to progress well in its diversification activities. However, the rejection of the company’s 2013 capital plan by the Fed might lessen shareholders’ confidence. Moreover, exposure to problem assets, a protracted economic recovery and various regulatory issues are expected to mar BB&T’s top-line improvement.

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